In her Congressional testimony to the Joint Economic Committee, Yellen downplayed talk of a Fed-fueled stock market bubble.

“More generally,” she said in her prepared statement, “valuations for the equity market as a whole and other broad categories of assets, such as residential real estate, remain within historical norms.”

The new Fed chief did acknowledge, however, that the nation’s central bank recognizes that the long-period of low interest rates “has the potential to induce investors to ‘reach’ for yield, by taking on increased leverage” and other risks.

She said “some reach-for-yield may be evident,” but cited “lower-rated corporate debt markets” as the prime example.

Janet Yellen (Getty Images)

But in the question-and-answer session, Yellen said there might be some pockets of froth in the U.S. stock market, citing potential “mis-valuations” in the small-company stock space.

(The Russell 2000, a small-cap stock index, not only has the most expensive valuations compared with other major U.S. indexes, but has also suffered the biggest drop since its 2014 high. In trading Wednesday, the small-cap index was trading lower, leaving it down more than 9% from its March 4 record high, and flirting with a 10% correction.)

Valuation statistics back Yellen’s premise that smaller stocks are more expensive than the rest of the market.

Below are P-E ratios of major U.S. stock indexes at the start of this week (using forward 12-month operating earnings estimates):